The French ex­cep­tion?

More than ever, the French econ­omy is at the cen­tre of the global de­bate about how far one can push the lim­its of state size and con­trol in a cap­i­tal­ist democ­racy. To those on the left, France’s gen­er­ous ben­e­fits and strong trade unions pro­vide a for­mula for a more in­clu­sive wel­fare state. To those on the right, France’s over­sized and in­tru­sive gov­ern­ment of­fers only a blue­print for sec­u­lar de­cline. For the mo­ment, the right looks right.

Once nearly the eco­nomic equal of Ger­many, France has fallen well be­hind over the past decade, with per capita GDP now about 10% lower. France may punch above its weight po­lit­i­cally, but it punches far be­low its weight eco­nom­i­cally.

When­ever some­one pro­poses turn­ing the eu­ro­zone into a trans­fer union, as France’s econ­omy min­is­ter, Em­manuel Macron, re­cently did, the pre­sump­tion is that Ger­many will carry ev­ery­one else on its shoul­ders. But why should only Ger­many have that re­spon­si­bil­ity? France’s econ­omy is roughly three-quar­ters the size of Ger­many’s. Per­suad­ing the Ger­mans that the French are will­ing and able to pay their fair share could make room for a lot of nec­es­sary com­pro­mises that un­til now have seemed im­pos­si­ble.

For now, few peo­ple feel con­fi­dent about France’s eco­nomic fu­ture. The good news is that France is not quite as French as it pre­tends to be. Yes, there is a 35-hour work­week, but com­pa­nies can ne­go­ti­ate around the limit by of­fer­ing to pay more for overtime. The ef­fec­tive work­week for most work­ers is per­haps closer to 39 hours.

Yes, France has sought to limit the car ser­vice Uber, whose busi­ness model has ar­guably been one of the most trans­for­ma­tive and im­por­tant ad­vances of the decade. But, while this is a tri­umph for taxi unions and a tragedy for pas­sen­gers and Uber driv­ers, France has also started fo­cus­ing on nur­tur­ing small, high-po­ten­tial tech­nol­ogy com­pa­nies.

The French gov­ern­ment is no longer plac­ing all its bets on big, state-led projects, as it did in the 1970s hey­day of mas­sive in­vest­ment in high-speed trains and Air­bus. Pres­i­dent Fran­cois Hol­lande has given Macron wide berth to try to im­ple­ment des­per­ately needed struc­tural re­forms of la­bor and prod­uct mar­kets. Of course, it re­mains to be seen just how much po­lit­i­cal sup­port such mar­ket-ori­ented poli­cies can sus­tain.

Pro­gres­sive econ­o­mists love the French gov­ern­ment for spend­ing a stag­ger­ing 57% of GDP, com­pared to gov­ern­ment ex­pen­di­tures of 44% of GDP for Ger­many. And it must be ac­knowl­edged that the French gov­ern­ment pro­vides ex­cel­lent value in some key ar­eas. France’s health ser­vice justly re­ceives much bet­ter re­views than the United King­dom’s. French cit­i­zens might pay a lot of taxes and suf­fer a high de­gree of reg­u­la­tion, but at least they get some­thing in re­turn.

Wor­ry­ingly, it is not clear how well France’s cul­ture of in­clu­sive­ness can ever ex­tend to im­mi­grants. The same strict fir­ing laws and high lev­els of min­i­mum wages that are in­tended to pro­tect na­tive French work­ers from glob­al­i­sa­tion make it much more dif­fi­cult for new­com­ers to land jobs. Yet vir­tu­ally ev­ery study of global in­equal­ity sug­gests that gains from al­low­ing greater labour mo­bil­ity dwarf gains from re­dis­tribut­ing in­come among na­tives. By con­trast, the more lib­eral labour laws in the United States and the United King­dom en­sure more op­por­tu­ni­ties for out­siders.

The cen­tre of Paris and other French cities may be grand, but many im­mi­grants from North Africa and else­where live in squalid ghet­tos on the out­skirts. Although the pre­cise rate of un­em­ploy­ment for par­tic­u­lar eth­nic groups is not known (French law pre­cludes col­lect­ing data by eth­nic clas­si­fi­ca­tion), anec­do­tal ev­i­dence sug­gests much higher lev­els of job­less­ness for im­mi­grants and their de­scen­dants.

True, the gov­ern­ment pro­vides gen­er­ous wel­fare ben­e­fits; but this alone does not pro­duce in­clu­sive­ness. Strong pop­u­lar sup­port for Marine Le Pen’s anti-immigration Na­tional Front party, to­gether with French re­cal­ci­trance about ac­cept­ing mi­grants es­cap­ing the war in Syria, in­di­cates the prob­lems with ap­ply­ing the French model in di­verse so­ci­eties.

Another ob­sta­cle to ap­ply­ing the French model else­where is that France en­joys cer­tain unique ad­van­tages that are ar­guably crit­i­cal to its suc­cess. Elite French man­agers are widely con­sid­ered among the best in the world, and are fre­quently se­lected to head ma­jor in­ter­na­tional cor­po­ra­tions. Cor­rup­tion is cer­tainly a prob­lem, but sig­nif­i­cantly less so than in most of the eu­ro­zone’s south. (The Ital­ian state is also large and in­tru­sive, but it does not pro­duce the high­qual­ity public ser­vices that the French gov­ern­ment does.) Lastly, France ar­guably has one of the world’s most favourable nat­u­ral en­vi­ron­ments, with fer­tile soil and an ex­cep­tion­ally tem­per­ate cli­mate.

A healthy French econ­omy would do won­ders to help lift the eu­ro­zone out of its malaise. It could also pro­vide an ex­am­ple to coun­tries ev­ery­where of how in­clu­sive cap­i­tal­ism can work. But that as­sumes that the gov­ern­ment will em­brace the struc­tural re­forms that France’s econ­omy so des­per­ately needs.